Case study

A business can use breakeven analysis to discover its breakeven output and the impact of changes in output on its profit levels.

Breakeven maybe useful to start-up businesses, because it is a simple, straight forward way of discovering whether a business plan is likely to succeed financially. Also a breakeven char can show the different levels of achieved. This means that business can predict its profit levels if it knows the number of units that is going to sell. Knowing the future profit levels can help a business to plan its future and strategies.

And for the most case, also for Nick Hess, breakeven can be used to calculate how long it will take to reach the level of output needed to make a profit, this will help the entrepreneur to assess whether or not the business is viable. New businesses often suffer from cash-flow problems, so it is useful for them to know when they can expect to reach a profit level. This information will help them to get financial support, such as a bank overdraft.

But also, there are some weaknesses of breakeven analysis. For example, the information may be unreliable; most breakeven charts are based on forecasts. It’s difficult to predict the number of customers who will buy the firm’s product, even with careful market research. Sales are unlikely to be exactly the same as output.

For Mr.Nick Hess and Foodeaze, they have their own USP, and it maybe a attractive point of their products. However, the opening of a new store nearby selling similar products its really affect their sales, so even the break-even they did before, it also can’t predict what will suddenly happen around them.

So breakeven is just a little value to an entrepreneur, the most important things they need to do is look around the location of the business, and do some research before starting up.